UK Pension Annuity when an expat or non-resident

An expat annuity is a product that gives a guaranteed income in exchange for handing over a lump sum. International annuities are no longer something that is offered to expatriates from the UK, given our advice experience and numerous searches we have done over the years for clients. There are odd exceptions to the rule, but these are limited to specific personal circumstances and the type of pension provider you are already with. If you are living overseas, an annuity will likely not be an option for you, so you need to consider flexi-drawdown or 20-year income-generating strategy.

An annuity converts your savings into an annual pension income, giving you a guaranteed income for life, or for a specified period. They are attractive to some clients as they give a set income, paid on a regular pattern and may grow with inflation. The difficulty is annuities are not offered to expatriate and non-resident clients. Trying to take a cash distribution from a UK pension and buying an annuity in your home market is unattractive as income tax at 40% is likely to be applied by the HMRC on the withdrawal. A lower lumpsum amount is not wise to then convert to try get an annuity in the market where you live as the income will be low after considering the 40% tax rate on the withdrawal.

Annuity options for those with UK-based pensions living overseas in the future or retiring abroad.

Using a defined contribution company pension or private pension to buy an open-market annuity is not a mainstream option for non-residents. Expats and foreign nationals living outside the UK are frustrated when making decisions to buy an annuity due to product provider rules and policies. Many insurance companies and pension trustees focus their policies on the majority of their customers, which are members that live in the UK, so for people living in Europe, America or elsewhere, they face challenges.

From a practical perspective, UK pensions are protected under UK law, UK financial services regulations and UK compensation schemes. They rarely encroach on overseas regulator’s rules. Most financial regulators acknowledge this. So, global-thinking financial advisors can work with some UK pension providers that will offer terms even when you do not live in the UK. Annuities have become much more attractive as pension annuity rates have gone up.

Taking retirement benefits but living abroad

When reaching retirement age or considering retirement, accessing UK pension savings may be more complicated if you live overseas or only worked in the UK for a period of time. The retirement options available within the scheme (or schemes) – perhaps income drawdown, tax free lump sum, purchase of an annuity, etc – should be the same to all members, wherever they happen to reside at the time of their retirement.

Nevertheless, some benefit options may not be available to members overseas if providing them would require a member to accidentally default into a new contract for them. For example, if the pension provider did not offer an annuity, the member would have to buy the annuity from a separate provider, and that would be a new contract, so it depends on whether an annuity provider is willing to enter into a contract with someone outside the UK. Few will, as they would then need to meet regulatory and tax-reporting requirements to be able to do so.

The UK’s main list of annuity providers and their stance on non-resident annuity:

Just Retirement Annuity

They can only offer Annuities to UK residents with a UK based GP and UK Bank account.

Scottish Widows Annuity

You must live in the UK or Northern Ireland (this doesn’t include Channel Islands or the Isle of Man). So non-residents cannot get an Annuity from Scottish Widows.

Canada Life Annuity

Their key facts document requires “you are a UK resident”, so this annuity is not available to non-residents.

Legal and General Annuity

They can only offer Annuities to UK residents and need to be resident in the UK for 6 months of the year.

Standard Life Annuity

You must live in the UK.

LV= Annuity

You must be a must be a permanent UK resident.

Buying an annuity

A retiree seeking a secure and regular income can purchase an Annuity, either at retirement, or at a later date. What is an Annuity? It is an insurance product that allows a pension member to exchange their pension pot for a guaranteed regular income which lasts for their lifetime or a specified period. Purchasing an Annuity is an irreversible decision, so exchanging a lump sum for a guaranteed income needs to be understood carefully.

A quarter of your pension pot can usually be taken as a tax-free lump sum and any other payments will be added to the rest of your income and taxed at your highest marginal rate of income tax. You can usually take your benefits from the minimum pension age. This is currently age 55. From 6 April 2028 this will be age 57 unless you have a protected pension age.

Not all pension providers offer annuities and some contractually outsource these to an annuity provider. Therefore, contractually, if you have an existing pension with one of these pension schemes and live overseas, you should be offered an Annuity in your Retirement Pack.

When deciding to take benefits if you are not resident in the UK at the time you take benefits, the range of options can be smaller. Shopping around to find the right retirement product if you are already living abroad may be more difficult, depending on the new provider being able to accept the business.

You can get UK financial advice on your UK pension is living abroad

The UK regulator, the Financial Conduct Authority, are comfortable for individuals who are members of UK pension to take care of their UK pensions and get advice as if they were residents in the UK provided the local regulations where you reside do not require any additional measures other than UK regulations protecting you and your UK pension.

Overseas residents taking benefits from UK schemes

Annuities have traditionally been a popular choice, but alternative options are emerging, providing flexibility and potential growth. Ultimately, determining the best option depends on individual financial goals and risk tolerance. Annuities provide security, while alternative options offer flexibility and growth. Overseas residents must weigh these factors carefully to ensure a financially stable retirement.

There are many issues to untangle when you take benefits from a UK pension if you’re now resident abroad, but to start with, consider the following. 1. Tax Treatment: it’s always important to think about the tax implications of receiving pension benefits.

Living outside the UK

It can prove frustrating to get an annuity when living abroad. With few exceptions, most UK provider financial services prefer to deal with UK residents. Treating non-residents can be complicated and risky for providers, which can make the offering more onerous and expensive. Providers often prefer to only deal with those who are based in the UK. When living abroad, having an adviser who is able to deal directly with providers and guide you towards someone who is able to work for you can help.

Overseas residents taking annuity from UK schemes

For overseas residents who are receiving annuities from UK pension schemes, it’s important to understand both the tax implications and payment mechanisms involved. Annuity payments are generally subject to UK income tax under PAYE, even if the recipient is no longer a UK resident.

Consulting a financial adviser with expertise in cross-border pensions can help ensure the correct tax treatment and optimal financial planning for those relying on UK annuities while living abroad.

Have UK Pensions and want an get a guaranteed income in retirement?

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UK Pension Annuity for Non-UK Residents

One of the primary challenges faced by non-UK residents when it comes to UK pension annuities is that most providers limit their annuity products to UK residents only. This restriction can significantly complicate retirement planning for individuals who have moved abroad. Many pension providers are hesitant to offer annuities to those living outside the UK due to the complexities of cross-border regulations, differing tax rules, and increased compliance requirements. As a result, non-UK residents often find their options for purchasing an annuity limited or even unavailable.

For those who had purchased their annuity before leaving the UK, such payments might still be subject to administrative headaches, tax issues, and possible currency arrangement issues. The limited availability of annuity products represents a significant problem for some expatriate retirees who need to supplement their retirement income while abroad, as annuity payments tend to offer the much-needed income certainty and security.

Annuity options for those with UK-based pensions living overseas in the future or retiring abroad. Using a defined contribution company pension or private pension to buy an open-market annuity is not a mainstream option for non-residents. Expats and foreign nationals living outside the UK are frustrated when making decisions to buy an annuity due to product provider rules and policies. Many insurance companies and pension trustees focus their policies on the majority of their customers, which are members that live in the UK, so for people living in Europe, America or elsewhere, they face challenges.

Case study: Elizabeth’s Complicated Access to a UK Annuity to Obtain Pension Benefits In The UK

As Elizabeth, a long-term expat who had left the UK decades before, began to think about her later retirement years, she had complications to consider in accessing an annuity. She approached Edale for advice as her options were not Elizabeth had over five years before being able to take the state pension in her adopted country and less than three years to access the UK State Pension. As her partner couldn’t work any longer because of his declining health, she wanted to access her tax-free savings to take here tax -free cash ey to pay-up her UK National Insurance to be eligible for the full UK state pension and get an annuity for a secure base income. She had a plan of potentially returning to the UK, so she wanted her UK Pension paid to a UK Bank Account. Elizabeth was in a fortunate position as her Phoenix LIfe pension had protected benefits, so she was contractually able to be offered an annuity. It is rare for an annuity to be provided to non-residents where there are no protected rights. Phoenix Life insisted the money was paid to an overseas account as Elizabeth was a non-resident.

UK Annuity for Non-Resident
The Dilemma
Elizabeth had a Phoenix Life pension with valuable protected benefits but found regular annuity payments could only be made to an account overseas as she was not a UK resident. This was a problem, as Elizabeth was considering moving back to the UK to claim state pensions and care for her partner better. She wished her annuity payments were paid into a UK bank account, to make financial planning easier should she ever return home. Meanwhile, she drew on the tax-free lump sum in her pension to pay missing UK National INsurance years to be eligible for the UK State Pension.

Evaluating the Options
We had a call with Elizabeth to assist in explaining her situation and offered guidance on the best strategy for her. The main choices were:
– Buying the annuity and sending money to her account in a foreign country.
– Transferring the pension to a provider that would accept a nonresident to offer flexible drawdown paid into a UK Bank Account after her PCLS was paid.

Flexible drawdown instead of an annuity
For those unable to get an annuity as a non-UK resident, Flexible drawdown lets them draw different amounts from their pension at irregular or regular intervals. It’s flexible but puts the money at risk of investment and may mean different incomes.

For Elizabeth, after careful estimation, the annuity’s guaranteed payout – approximately £1,000 a year from a £19,000 pension pot – was evident as the wisest financial course for Elizabeth. The annuity brought stability, which she and her husband needed and outweighed the complexity of opening a GBP Bank account in her home country to receive the cash.

Strategic Recommendations
We said that Elizabeth should take the annuity and advised her on how to maximise her financial returns:
-Setup a UK Sterling or Multi-Currency Bank Account: So, instead of risking the losses posed by fluctuations in the currencies, we suggested that Elizabeth open a UK Sterling account in her home country or a multi-currency account. She’d receive her annuity payments in GBP, preserving the value of her drawdown and making it easier to control currency.
-Decide to Pay Quarterly or Less Frequently: Annuity payments would be made through SWIFT, the international bank transfer system usually costing £15 per transfer, so we advised quarterly or less frequent payments from the annuity. This would reduce the amount of her income that she paid in charges to the bank and would leave a larger proportion of her annuity to her use.
-Utilise the Tax-Free Lump Sum: Her pension, in a tax-free lump-sum payment, helped with short-term expenses and funded the missing National Insurance years in the UK.

Outcome and Future Considerations
Elizabeth took the annuity and applied the advice. Guaranteed income offered security, and the lump sum tax free cash was used to pay the missing national insurance to access the full UK State Pension. By setting up a multi-currency account and paying quarterly, she saved on transaction fees and retained more of her annuity income. The annuity payments were paid to her overseas account, but Elizabeth’s plans gave her leeway if she wanted to move back to the UK in the future.

This example also shows the need for tailored financial advice regarding tricky pension decisions, particularly for expats. By working with Elizabeth’s specific situation and interests, we ensured that she could maximise her pension while retaining sufficient income for herself and her husband.

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Taxation of UK annuity income for non-resident

Is annuity income taxable for expats? Yes, annuity income is taxable in the UK. HMRC treats your annuity income like any other taxable income, including your State Pension. There is the UK Personal Allowance, but a full UK State Pension and annuity income could make it taxable as it’s above the single personal income allowance. If you took an annuity before leaving the UK then you may have taken a tax free initial payment before commencing the annuity. 25% of the overall pension fund value can be taken as a tax-free lump sum. This is the only payment you can take which is guaranteed to be free of any income or capital gains tax, so is often a good decision before buying an annuity or moving abroad.

Annuity income payments to non-UK Bank

The annuity payment can be paid in sterling into a UK bank account. The pensioner can then transfer money as and when required (e.g., when the exchange rate is good) to a bank account in the country of residence or leave the money invested in the UK bank and draw funds when back in the UK.

Some pension benefits can be paid to a local bank in the pensioner’s country of residence, in his local currency, through the Transcontinental Automated Payment Service (TAPS). This is the simplest way to ensure that the pension is paid on time, and quickly, and is fully accessible.

Trying to get payments through SWIFT (the international payment network) is a method for which most annuity providers are not set up to cater. Making payments through this channel will be a manual and non-conventional approach, so even if it is operationally an option, it will add tens of pounds of expense to each income payment.

Explanation of the TAPS system…
Direct TAPS
The Transcontinental Automated Payment System allows payments (including pension payments) to be transferred from the UK to overseas bank accounts, in the local currency.

The TAPS system works by agreement between UK banks and banks in a number of countries. These tend to be countries in Western Europe and the Commonwealth, as well as the USA.

As each payment is converted from sterling to the local currency, there’s a charge for the currency exchange as well as a charge for using the TAPS network. In addition, the recipient must accept the currency exchange rate in place at the time of transfer, which may not be favourable. However, as the process is automated, the costs are lower than if the individual transferred the monies abroad personally from a UK bank account.

Indirect TAPS
Even if the pensioner’s country of residence isn’t on the direct TAPS list, it may still possible to make payments using an indirect TAPS service. The process is similar to direct TAPS but, because no formal agreement exists, the UK bank has to arrange the transfer independently with a bank in the country of residence.

This will lead to higher transaction costs and the process will take longer.

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Taxation of UK pensions for overseas residents

Most UK pensions are taxable as earned income regardless of how they’re paid. This means that they must be paid and taxed under the PAYE system. A pensioner moving or living abroad, may be a non-UK taxpayer, so could be eligible to receive UK pension gross without deduction of UK income tax. This also applies where the overseas resident is a beneficiary of a pension. To find out if this possible, the pensioner can call 0300 322 7657 – this is an HMRC helpline for non-residents with UK PAYE tax queries.

If a pensioner is resident in a country which has a double taxation agreement with the UK. it’s possible for the pension income to be taxed only in the country of residence. Pensioners should complete a double taxation agreement claim form for the country they live in, and have it approved by the tax authorities in that country, before submitting it to HMRC for authorisation.
Claim forms are available from GOV.UK or from the tax authorities in the pensioner’s country of residence. Once HMRC authorisation is received, the pension provider will be able to pay the pension as a gross payment without UK income tax being deducted.
If the pensioner lives in a country that doesn’t have a double taxation agreement with the UK, income tax will be deducted in the UK.